Cards vs Digital Wallets — How does the Authorization Flow in Payments differ?

???????? ???? ?????????????? ?????????????? — how Digital Wallets bypass banks and card networks saving interchange fees for merchants and consumers ??

Digital Wallets are challenging the Consumer-To-Business (C2B) payment ecosystems, including cards with their on-us approach.

There are 3 main types of digital wallets:

1. ???????? ?????????????? ?????????????? — ( 苹果 Pay, Google Pay ) — commonly mobile device-oriented solutions that enable customers to make payments both in physical stores, using tap-to-pay functionality, and online. These wallets typically use tokenization to create a secure, digital representation of the customer's physical Visa card.
2. ???????????? ?????????? ?????????????? — ( Cash App , Venmo ) — similar to prepaid cards, as they allocate a separate "account" to each customer. Users can load funds onto this account, then, once the account is funded, customers can engage in transactions with sellers who are part of the digital wallet's platform. It operates as the Merchant Of Record (MOR) in its own ecosystem.
3. ???????????? ?????????????? ?????????????? — ( PayPal , 支付宝 , Amazon Pay ) — operates by using multiple "stages" to complete a transaction, consisting of a "funding" stage and a "payment" stage. Essentially, the wallet acts like an intermediary in the transaction process. With a staged wallet, the card issuer or card network may not have access to specific card details or other pertinent information. It is the MOR in all transactions.

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• Definition: Digital payment systems restricted to a specific network of merchants or services.
• Usage: Only usable within a specific ecosystem (e.g., Starbucks app).
• Benefits: Enhances customer loyalty, integrates rewards and promotions.
• i.e.: 星巴克 Mobile App, 沃尔玛 Pay

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• Definition: Digital payment systems usable across a wide range of merchants and platforms.
• Usage: Can be used at any merchant that supports the payment method (e.g., Apple Pay).
• Benefits: Broad acceptance, versatile, links various credit/debit cards.
• i.e: 苹果 Pay, Google Pay

Note: a Closed-Loop wallet can become open and vice versa, an Open Loop wallet can also adopt a closed loop model.

The card payment authorization flow involves a minimum of 9 steps, at times more & is subject to interchange, assessment & PSP fees. A closed loop wallet bypasses the issuer (interchange) and card networks (assessment) fees making this an attractive solution for merchants, also giving them more bandwidth de create advantageous loyalty programs.

If you could move forward with 1 initiative, create a digital wallet or launch a co-branded card, what would you choose & why?

Source: ARK Investment Management LLC , Checkout.com & Howard Xiao

?? The Payments Brews ??: https://lnkd.in/g5cDhnjC

?? Connecting the dots in payments... & Marcel van Oost .